Law Firms Tightening Belts -- By Request

Officials of corporate legal departments say they have reduced spending on outside law firms. Legal spending by corporations increased 3 percent this year, compared with 6 to 7 percent last year, according to a survey conducted last month by Hildebrandt International, a legal consulting firm.

"The uncertainty has a chilling effect on mergers and acquisitions" of corporations, said Douglas Woloshin, a partner at Duane Morris.

In the past, "there would probably be five to 10 transactions on a monthly basis -- local, regional or national. That has now dwindled to one to five a month," Woloshin said, adding that the firm now is relying more on its immigration and intellectual property practices.

Law firms' profits per equity partner dropped by 9.1 percent in the first half of 2008, compared with a 9.3 percent increase in the past seven years, according to a study by Citi Private Bank.

Because of the higher expenses they pay for associates' salaries and office space, larger firms in general are hardest hit by the slump, Medice said. But smaller ones say they are struggling because it is taking longer to collect fees from clients.

"What we're finding is that people who normally pay every 30 days stretch it out to 45 or 50 days. People who normally pay every 45 days stretch it to 60 or 75 days," said Sam Klewans, a partner at Grad, Logan & Klewans in Falls Church.

"In a small firm, you live on cash flow," Klewans added. "It can become difficult."

But others say the faltering economy is spurring them to seek new opportunities. Experts say they are seeing a wave of mergers and expansions of law firms.

There were 58 law firm mergers in the first three quarters of the year, up from 44 last year, according to Altman Weil, a legal consulting firm.

Crowell & Moring, which specializes in antitrust and bankruptcy, brought in Lightfoot Vandevelde, a small Los Angeles firm with seven attorneys handling corporate litigation cases. Muldoon Murphy & Aguggia linked up with Atlanta-based Kilpatrick Stockton to expand their representation of financial institutions. Ross, Dixon & Bell, which specializes in commercial litigation and insurance, merged with Atlanta-based Troutman Saunders, which handles real estate and finance cases. And O'Connor & Hannan, which practices government relations law, joined forces with Los Angeles-based Nossaman Guthner Knox & Elliott, which handles land use and health-care cases.

Some are growing through acquiring lawyers from other big firms.

Last month, Arent Fox expanded its commercial real estate practice by hiring away a team of four from Nixon Peabody -- Edward M. Rogers and Debra D. Yogodzinski were named partners; ElChino M. Martin was named counsel to the real estate group; and Ellen M. McCarthy was named director of planning and land use. They brought with them a list of high-profile clients, including the Freedom Forum, which owns the Newseum; Specialty Hospitals of America, which owns United Medical Center in Southeast; and Abdo Development, which is overseeing a reconstruction project at Catholic University.

Arent Fox officials said even though revenue is up, the firm needed an experienced team to handle the more rigorous and cumbersome procedures that large-scale projects now require in the aftermath of the financial crisis.

"Given all that's happened over the last 90 days, we're clearly heading into an environment of more government regulation," said Mark M. Katz, who heads the firm's real estate practice.

"The deals are taking longer to close," Katz added. "It takes longer and is more complicated."